Thursday, November 24, 2005

XBRL

XBRL (eXtensible Business Reporting Language) is an XML-based language which allows business information to be electronically communicated more easily than through other available formats. Originally, the development of XBRL was undertaken by The American Institute for Certified Public Accountants (AICPA) but a new international not-for-profit consortium made up of large companies, professional service organisations, accounting bodies and government agencies has now adopted the project.

The primary aim of XBRL is to enhance the efficiency and effectiveness of exchanging and analysing business data by improving reliability and making it easier to update. It uses standard tags which are always assigned to a piece of data (e.g. Net Income), even if it is altered, in order for other databases to recognise them and use the figures. The following is a summary of the potential for using this language, and more detail can be found on the XBRL official website.· Company internal and external financial reporting· Business reporting to regulators e.g. tax and financial authorities and governments.· Filing of loan applications· Exchange of information e.g. between government departments · Providing a standard way of describing accounting regulations· It can organise a wide range of other financial and statistical data which needs to be stored, exchanged and analysed.· Readily available information

AdvantagesThere are many benefits in using XBRL technology for all of the stakeholders. The companies themselves would see a significant drop in the amount of data entry performed by employees as the information only needs to be recorded one time and can then be used for many different purposes. Because XBRL is open-architecture technology, it can also cope with different accounting standards so there is no requirement to enter different data and prepare country specific reports for a multi-national company – it can adapt to the differing regulations and languages when needed. Another advantage from an internal organisational perspective is that it is free to use and can normally be integrated into existing software.

Auditors will also see many advantages if their clients use XBRL as it will allow them to perform accurate data searches and analysis more efficiently and reducing the time taken to do all the necessary procedures for an audit will subsequently reduce the fees (some auditors may see this as a disadvantage however, I am basing the argument on the fact that they would spend less time on each audit therefore be able to take on more clients).

After the increased number of business scandals in the recent past, many investors are concerned about the transparency of financial information and compliance with current regulations (e.g. Sarbanes-Oxley, IFRS). XBRL can be used as a way of allowing investors continuous access to correct information through the company website and perform their own analysis – many software applications such as Microsoft Excel are now compatible with XBRL so the data can be downloaded at any time.

DisadvantagesAs with all new technology, there are some disadvantages to implementation. The main issue is security as it would mean that many companies would have to use better software to protect their financial information from being accessed and changed without permission. If the information is considered to be more reliable than before, regulators and investors may place too much emphasis on it however, there is still an opportunity for the data to be manipulated by company management. Another problem is that if the data is accessible at any time, there is greater need for it to be accurate at all times otherwise it could prove to be misleading and the company could find itself in court. Finally, there may be a high implementation cost for some companies if they do not have up-to-date technology or web presence however, I think that many organisations, particularly the large multi-nationals will have adequate systems in place for XBRL to be integrated with.

ConclusionCurrently, XBRL is not used as frequently in the UK as it is in the US because it is still moving from the development stage to practical use. I feel that with the continuing globalisation of business, all organisations should be striving to use the technology in the near future as there will be significant cost benefits due to the reduced printing of country specific reports. The developers of XBRL are continuing to make technological advances and new products (updates and add-ons) are always on the horizon.

1 Comments:

Great post...We are putting on a podcast, "the xbrl show" (www.thexbrlshow.com) around this very topic. Take a listen and let me know what you think.If you or someone with whom you are associated woudl like to "call in" as a correspondent and let us know what's going on in the UK with regards to XBRL, we'd love to have you.We want to cover this right but we want it to be a conversation. Your blog posting makes you part of the larger conversation and we'd love to invite you to chat in ours.